Raising the rent the right way: the three legal routes under the German Civil Code

Rent adjustment is a process, not a one-off decision

Anyone holding a larger residential portfolio knows the pattern: rents left untouched for years drift further and further below the local comparative rent. At some point the gap can no longer be closed in one step — the statutory cap puts a hard limit on how much can be recovered. Professional portfolio holders therefore treat rent adjustments not as isolated decisions but as a recurring process with fixed review dates for every unit.

During an ongoing tenancy, the German Civil Code (BGB) essentially provides three routes: an increase up to the local comparative rent (Section 558 BGB), the modernisation levy (Section 559 BGB) and the adjustment of operating costs (Section 560 BGB). When re-letting, two contractual models are added to the toolbox: index-linked rent (Section 557b BGB) and stepped rent (Section 557a BGB). Each route has its own requirements, deadlines and formal rules — and in practice, that is exactly where most increases fail.

One note up front: this article is general information and does not constitute legal advice. Whether a specific increase is permissible depends on the lease, on state-level ordinances and on current case law — when in doubt, have the individual case reviewed professionally.

Route 1: increase up to the local comparative rent (Section 558 BGB)

This is the standard route for existing tenancies: the landlord may demand the tenant’s consent to an increase up to the local comparative rent, provided the rent has remained unchanged for 15 months at the point when the increase is to take effect (Section 558(1) BGB). The demand itself may be issued at the earliest one year after the last increase — increases for modernisation or operating costs (Sections 559 and 560 BGB) are generally disregarded for this waiting period.

The second guard rail is the cap (Kappungsgrenze): within any three-year period, the rent may not rise by more than 20 per cent via this route (Section 558(3) BGB). In areas designated by the state governments through a cap ordinance — including many major cities, among them Berlin — a reduced cap of 15 per cent applies. Here too, increases under Sections 559 and 560 BGB are generally not counted.

For planning purposes, this yields a simple rule: regular, moderately sized adjustments almost always beat a rare large jump. A landlord who leaves the cap unused for years gives up headroom that cannot be recovered later.

The procedure: justification, consent, deadlines (Sections 558a, 558b BGB)

An increase to the comparative rent is not a unilateral right but a consent procedure: the landlord declares and justifies the demand in text form (Section 558a(1) BGB), and the tenant must consent. As means of justification, Section 558a(2) BGB names in particular:

• A rent index (Mietspiegel): the most important instrument in practice. One special rule: where a qualified rent index (Section 558d BGB) exists and contains data for the dwelling, its values must generally be stated in the demand even if the increase is based on a different means of justification (Section 558a(3) BGB).
• Information from a rent database — rare in practice, as such databases exist in only a few cities.
• A reasoned report by a publicly appointed and sworn expert — more expensive, but useful for properties without a workable rent index.
• Reference to the rents paid for at least three comparable dwellings — the dwellings must be identifiable for the tenant and genuinely comparable.

How the tenant can respond — and what happens next

After receiving the demand, the tenant has a consideration period running until the end of the second calendar month following receipt (Section 558b(2) BGB). If the tenant consents — in full or in part — the increased rent is owed from the beginning of the third calendar month after receipt of the demand (Section 558b(1) BGB). An example: if the demand is received in March, the consideration period runs until the end of May, and the new rent applies from June.

If the tenant does not consent, or consents only in part, the landlord may sue for consent. The claim must be filed within three further months after the consideration period expires (Section 558b(2) BGB) — miss that window, and the procedure has to start again from scratch with a new demand. For portfolio holders, the lesson is clear: document deadlines for every unit and set reminders, because a single overlooked date costs an entire adjustment cycle.

Route 2: the modernisation levy (Section 559 BGB)

After carrying out certain modernisation measures within the meaning of Section 555b BGB — such as energy-efficiency upgrades or measures that sustainably increase the utility value of the dwelling — the landlord may increase the annual rent by 8 per cent of the modernisation costs attributable to the dwelling (Section 559(1) BGB). Important: costs attributable to maintenance and repair do not qualify and must be deducted (Section 559(2) BGB) — for a roof renewal that was due anyway, only the genuine modernisation share can be passed on.

The levy is capped twice over and formally demanding. The key guard rails:

• Absolute cap: within six years, the monthly rent may not rise by more than 3 euros per square metre of living space through modernisation levies; if the rent before the increase is below 7 euros per square metre, the limit is 2 euros (Section 559(3a) BGB). Increases under Section 558 or Section 560 BGB are disregarded for this purpose.
• Special case heating replacement: for the installation of a heating system that meets the requirements of Section 71 of the Buildings Energy Act (GEG) (Section 555b no. 1a BGB), a separate levy under Section 559e BGB has applied since 2024 — 10 per cent of the costs incurred, but only after deducting any third-party funds claimed, such as public subsidies, and with its own cap of 0.50 euros per square metre of living space within six years. For subsidised heating projects in particular, this calculation belongs in the business case from the start.
• Notice requirement: the measure must generally be announced to the tenant in text form no later than three months before it begins — stating its nature, scope, start date and expected duration as well as the anticipated rent increase (Section 555c(1) BGB).
• Increase declaration: the increase itself must be declared in text form and the calculation must be set out comprehensibly (Section 559b(1) BGB). The increased rent is generally owed from the beginning of the third month after receipt of the declaration; this period is extended by six months if the announcement was missing or the actual increase exceeds the announced one by more than 10 per cent (Section 559b(2) BGB).
• Hardship objection: tenants may invoke unreasonable financial hardship, in which case the levy is excluded in whole or in part (Section 559(4) BGB). The objection is generally subject to a deadline (Section 555d(3) BGB) and does not usually apply where the dwelling was merely brought up to a generally customary standard.

Route 3: adjusting operating costs (Section 560 BGB)

The third route does not increase the yield, but it protects it: where advance payments for operating costs have been agreed, either party may — after an annual statement has been issued — adjust the advance payments to an appropriate level by declaration in text form (Section 560(4) BGB). A landlord who fails to adjust advance payments after costs have risen is effectively pre-financing the difference until the next statement — a tangible liquidity effect in larger portfolios.

Where a flat operating-cost fee has been agreed instead of advance payments, an increase is generally only possible if the lease expressly provides for it; it, too, must be declared and justified in text form (Section 560(1) BGB).

The precondition for both is a formally correct and timely annual statement: it must generally reach the tenant no later than twelve months after the end of the accounting period; after that, additional claims by the landlord are as a rule excluded, unless the landlord is not responsible for the delay (Section 556(3) BGB). The annual statement is therefore not just an obligation — it sets the rhythm for this entire route.

When re-letting: index-linked rent and stepped rent as alternatives

Every re-letting raises the fundamental question of whether the future development of the rent should be left to the statutory procedure or fixed in the contract. One thing to check first is the rent cap on new lettings, the so-called Mietpreisbremse (Sections 556d et seq. BGB): in areas with a tight housing market designated by ordinance of the respective federal state, the rent at the start of the tenancy may generally exceed the local comparative rent by no more than 10 per cent — subject to exceptions, for instance a higher previous rent or certain new-build and comprehensively modernised dwellings. Whether and where it applies varies by state and should be verified before every new letting.

For the contractual side, two models are available:

• Index-linked rent (Section 557b BGB): the rent is tied, by written agreement, to the consumer price index published by the Federal Statistical Office. Apart from increases under Sections 559 to 560 BGB, the rent must remain unchanged for at least one year at a time; adjustments are declared in text form, and the changed rent is owed from the beginning of the month after next following receipt of the declaration (Section 557b(2) and (3) BGB). Advantage: minimal justification effort and a built-in link to inflation. Disadvantage: while the index-linked rent applies, increases under Section 558 BGB are excluded, and the modernisation levy is available only to a limited extent — essentially for measures the landlord was not responsible for initiating (Section 557b(2) BGB).
• Stepped rent (Section 557a BGB): the rent is agreed in writing at different levels for defined periods, with each step stated as a specific amount and remaining unchanged for at least one year (Section 557a(1) and (2) BGB). Advantage: maximum predictability for both sides, with no increase procedure at all. Disadvantage: during its term, increases under Sections 558 to 559b BGB are excluded — if the market outruns the agreed steps, the difference cannot be recovered. In areas covered by the rent cap on new lettings, that cap generally applies to each individual rent step (Section 557a(4) BGB).

Formal mistakes that render increases invalid

In practice, rent increases fail less often on substance than on form. And an invalid demand costs more than postage: the procedure has to be restarted, the deadlines begin anew, and across a portfolio every lost adjustment cycle compounds over the years. The most common sources of error:

• Wrong parties: the demand must come from all landlords and reach all tenants of the dwelling — leave out one co-tenant, and the demand is generally invalid.
• Missing or unsuitable justification: a demand without one of the means listed in Section 558a(2) BGB, a rent index applied incorrectly, or comparable dwellings the tenant cannot identify.
• Deadline violations: the one-year waiting period and the 15-month rule of Section 558(1) BGB not observed, or the deadline for filing suit under Section 558b(2) BGB missed after the tenant withheld consent.
• Calculation errors: the wrong base rent used (for instance gross instead of net cold rent, depending on the rent structure), the cap not checked, or the new rent not stated unambiguously.
• In modernisation cases: the maintenance share not deducted (Section 559(2) BGB), costs not broken down comprehensibly in the increase declaration (Section 559b(1) BGB), or the announcement under Section 555c BGB omitted — the latter pushes the effective date of the increase back by six months.
• In operating-cost cases: the twelve-month deadline of Section 556(3) BGB missed — additional claims are then usually lost, and the adjustment of advance payments is delayed.

How professional management runs the rent-adjustment process

Legally sound rent adjustment ultimately comes down to systems: current rent indices and state ordinances monitored, rent histories documented for every unit, reminders in place for waiting periods, consideration periods and litigation deadlines, standardised letters kept up to date with legislation and case law — and a modernisation plan that treats announcement, execution and increase declaration as one process from the start.

That interlocking is precisely why larger portfolio holders rarely handle rent adjustments in-house. At KF Properties, commercial property management and the company’s own refurbishment and interior fit-out team work hand in hand: modernisation projects are planned so that announcement, execution and levy come from a single source, and owners can see rent histories, deadlines and documents at any time in the online portal — with one dedicated contact person instead of scattered responsibilities.

Organised this way, rent adjustment turns from a conflict-prone one-off event into a calm, recurring process. That protects not only the return but also the tenancy itself: a formally clean, comprehensibly justified increase is far more likely to simply be accepted.